Bank of England likely to put off another dose of cash printing despite recession shock

Bank of England policymakers are unlikely to vote for another dose of cash-printing today, despite the UK economy's shock return to recession.

Concerns that inflation is proving sticky are likely to stay the hands of most monetary policy committee members against voting for more quantitative easing.

The nine members voted in favour of a further £50billion of quantitative easing in February bringing the total to £325billion, after pressure for more stimulus had intensified as the deepening in the eurozone crisis hit the UK economy.

Frozen: The BoE is likely to vote against further QE tomorrow

But minutes from
the April meeting showed a reluctance to consider more QE because
inflation had not come down as quickly as the Bank had forecast. Even Adam Posen, who until
last month had been lead cheerleader for QE, dropped his
call for an extra £25billion.

That was before second-quarter GDP figures
showed the economy had fallen into a double-dip recession, muddying the
waters for monetary policy.

GDP declined 0.2 per cent in the first three months of the
year after a 0.3 per cent drop in the final quarter of 2011.

Inflation has been stubbornly high, unexpectedly rising in March to 3.5
per cent, despite Bank governor Sir Mervyn King and his colleagues
predicting that CPI would fall to the Government's 2 per cent target by
the end of the year.

And the accuracy of official growth data has
been called into question after a run of purchasing managers' surveys
in the first three months of the year revealed decent growth in the
manufacturing, construction and services sectors.

Howard Archer, chief economist at IHS
Global Insight, said the MPC decision is likely to go down to the wire
but he is leaning towards the view that the committee will hold off from
announcing more QE.

He said: ‘We expect the MPC to hold off from more QE due to its current
heightened inflation concerns and a belief that the economy is seeing
underlying modest growth despite the reported first-quarter GDP
contraction that put the economy officially back into recession.

‘However, we expect the MPC to keep the door very much open to more QE
should the economy fail to show underlying improvement over the coming
months.’

He said: ‘It is entirely feasible that some MPC members are fretting
about 'sticky' price pressures. However, the way in which events over
the past month have panned out suggest that these considerations will be
overtaken by the more subdued macro picture.’

The MPC will announce its decision at noon. Interest rates will be kept at their historic record low of 0.5 per cent.

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Bank of England likely to put off another dose of cash printing despite recession shock